A Better Alternative to Work Save Retire

Why save money?

There are some obvious answers to this question. A popular one is retirement. This is usually the answer people think of, but it’s not even close to being the most important. For many working people, retirement is so far away, that saving for it seems irrelevant. This is why so many people put off saving for retirement until it’s too late. This is a huge blunder, but an easy one to make if you operate like the average Joe. Think about it? Why would anyone sacrifice even a penny of hard-earned wages for something so distant that it’s nearly impossible to envision? I believe it’s crucial to save money, but not for retirement in the traditional sense. There is a better alternative to the work, save, retire grind.

Don't just work, save, retire. Pursue financial independence!

What is really the most important reason for saving money?

The most important reason for saving money is that it enriches the quality of your life by enabling you to achieve financial independence. I define financial independence as being able to do whatever you want without having to worry about money. In other words, if you spend any time doing something you don’t want to do for the sole reason of acquiring money, then you are not financially independent. Of course, everyone has to have money for basic necessities in life. However, when you are financially independent, how you generate those funds is independent from how you choose to spend your time. Financial independence is what everyone should strive for and saving money is a part of that no matter who you are. How big a part it plays depends largely on how you earn money.

WII: Work-Independent Income

Now that I’ve defined financial independence, I shouldn’t have to sell you on why it should be a major goal of yours. The freedom to do whatever you want obviously boosts your physical and mental health as well as your enjoyment of life, the two other components of The Magic Trio. What you need for financial independence is work-independent income (WII). There are basically two ways to earn WII:

1. Earn passive income (income that is generated while you sleep, i.e. investment income, interest, royalties, rent checks)
2. Earn active income (income you have to spend your time to earn, i.e. a job) by spending time doing something you’d do anyway

You become financially independent when you earn enough to live comfortably with some combination of these two avenues. Maybe it’s 50/50. Maybe you earn half of this amount, your minimum required income (MRI), from working a job that you love and that you’d do for free and the other half from interest. Maybe you earn it all through real estate investments. Maybe you earn it all through a job you love.

Most people do not earn any WII.

They don’t earn any passive income and they don’t earn active income doing something they truly enjoy and would do anyway. If you are one of the rare individuals who does not have this problem, then you can skip this section. If not, then the entire premise behind your personal financial strategy should be fixing this problem. This means finding or creating a job which you love, generating passive income, or both. I encourage you to do both, but the former may take some serious time and soul searching, so while you do this, you can also start building passive income. For passive income, unless you’ve created a good or service that makes you money while you sleep, you’ll need some capital. Whether that capital is used to generate interest or to make investments in real estate or other projects that earn a positive cash flow, you’ll need some.

Enter savings.

The more you save, the faster you build capital. The faster you build capital, the sooner you’ll be able to start playing around with it and earning some WII. How much capital you will need depends on the minimum required income you intend to fund. It’s as simple as that. The rest is just details, some of which I’ll get into later. The purpose of this section is to focus in on the “why”. Many personal finance books will advise you to start saving as early as possible (in your early 20s when you first begin working, if not sooner) so that you will have a large enough nest egg to retire by the time you turn 65. I say start saving as early as possible so that you can free yourself from the constraints of money, hopefully well before you turn 65! Don’t just work, save, retire old. Work hard early, save hard, and enjoy your life!